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Unable to see their own branches in the same way that their customers do, bankers have become "store-blind," according to Paul Olivier, group executive vice president, consumer banking, for San Antonio, Texas-based Frost Bank. After all, they may not like what they see.

The classic bank branch presents the uninspiring sight of tellers locked behind a protective enclosure; platform employees chained to their desks; the manager sequestered in a glass-walled office with the blinds closed; and a meager waiting area with two-month-old magazines and brochures about interest rates. After interrupting someone to get service, the customer is eventually invited to sit among the clutter of bulging three-ring binders bursting with compliance procedures.

"We became collectively unaware of what we were doing and the environment we were creating," Olivier says. "It's clearly inhospitable."

Frost Bank ($10 billion in assets) responded by changing the "choreography" of its branch environment with the help of NewGround (Manchester, Mo.), a bank design, construction and marketing firm. Now, "You are immediately greeted by a concierge counter," Olivier relates. "It's more like a registration desk at a very upscale hotel."

With customers often coming in simply to cash a check at the teller (now discreetly located in the back of the branch), the presence of a concierge gives the bank a chance to create a more lasting bond with its regular visitors. "Even if it's only been small talk for the past six months, there's the foundation for a relationship that's being made," Olivier says.

Another chance to form a relationship comes by introducing customers to technology. "With the advent of self-service through the Internet, the next-generation customers can take care of themselves extraordinarily well," Olivier notes. "Your branch has to be set up to acknowledge the existence, the importance and the relevance of the Internet."

Frost Bank provides full-service Internet terminals for its customers along with in-person help when needed. "We don't just point someone over to a phone or a computer," Olivier says. "We educate them and lead them through the process."

For more consultative financial services, the concierge shows the customer to an amenity-laden waiting room replete with fresh coffee, cable television and today's paper. When a banker becomes available, the customer is brought to a private conference room where the phone doesn't ring and there are no wayward piles of paper. The banker uses a wireless-equipped laptop computer to work with the customer on service options.

The shift to concierge-based retail banking has helped Frost Bank differentiate itself in the increasingly crowded Texas marketplace. Furthermore, the bank has prepared itself for a technology-enabled shift in consumer behavior. "The branch is going to go from a transaction center into a selling spot where you go to buy financial services," says Olivier. "The designs that we put in place make more sense than what took place in the past."

The Swan

While the business of branch banking has gone through substantial changes, regulation has often been the trigger. For instance, the 1994 Riegle-Neal Interstate Banking and Branching Efficiency Act opened up the country to national banks. Ten years later, there's not only industry-shaping legislation in the form of Check 21, but also an order-of-magnitude acceleration in the speed and capabilities of the technology and communications infrastructure.

Among those surveying the fast-moving landscape is Michael Shryne, senior vice president, M&T Bank (Buffalo; $50 billion in assets). M&T Bank recently licensed teller, call center and platform products from S1 Corp. (Atlanta), and it is now working on deployment.

Shryne describes five forces driving the brave new world of branch banking:

Changing consumer behaviors. People are carrying less cash due to heavy card usage and omnipresent ATMs. Furthermore, they're making transactions over the Internet. "When customers began adopting Web bill payment, that really was a turning point for Web banking," Shryne says.

Commoditization of financial services. "It's hard for any financial services institution to really attain a competitive advantage in the services and sales and products they offer," Shryne notes. "We all offer ... the same stuff." Also, deregulation has widened the field of competitors. "Merrill Lynch can offer a lot of the same things that we offer."

Landmark legislation. "While I do not think Check 21 is going to have revolutionary, immediate impact, its impact over the next three to eight years is going to change the landscape of how banks process payments," Shryne says.

Availability of technology. "New technologies have now entered the market at commercially viable price points and technical soundness that make them practical for banks to invest in them," according to Shryne. Four years ago, banks would have been hard-pressed to install reliable, high-speed check scanners at the teller line. "[That] was not available at a price point that you can afford," he says. "Today, it is."

Network bandwidth. Even as the bandwidth increases, the cost decreases. "It's not unreasonable to say that there will be T1s in every single branch," Shryne asserts. "With interactive video and Voice over IP, we're going to need it."

From Colorful Leaves to Bare Branches

Given these trends, what will the branch of the future look like? The first thing a visitor would likely notice would be the proliferation of video display screens. "Electronic signboards are now being used in fairly sophisticated ways by banks," says Mark Greene, general manager, global banking industry, IBM (Armonk, N.Y.). Marketing messages can be tailored to the date and time, the characteristics of the typical branch customer and various other characteristics. "If a lot of people show up on payday, then on payday you might want to advertise holiday savings accounts."

Getting even more specific, display screens could serve up custom content. "If I know who's looking at my digital sign, I can show different signs to different people," Greene says. One approach would be to embed a Radio Frequency Identification (RFID) chip on customers' cards, so that it could signal the customer's proximity to the nearest display. Alternatively, a bank could use the approach taken by Atlanta-based Brickstream, where computer vision tracks every step that a customer takes within the branch.

But it's a good bet that customers don't come to the bank branch to watch the brightly blinking display screens, even if it is blinking just for them. That's why banks are also investing in the automation of standard banking transactions. "We're increasingly looking at technologies that reduce the level of manual attention our staff has to put in," says M&T Bank's Shryne.

One of the latest innovations is teller-assisted self-service (TASS) kiosks, by which one teller simultaneously serves multiple customers. After authenticating their identifications, customers can help themselves to almost everything, except cash. Similar to the way that airlines have automated the flight check-in procedure, banks can use a row of dedicated terminals that allow customers to authenticate themselves and initiate transactions. Tellers would step in at the tail end, to disburse cash or cashier's checks, or to provide assistance with the machines when necessary.

Supporting this transformation are cash recycling machines, which can move banks from a centralized model of "cash in the safe" to a distributed model of secure cash-in/cash-out devices, from companies such as Glory USA (West Caldwell, N.J.) and De La Rue (Basingstoke, U.K.). "For the first time, I can have [a branch] and no concept of tellers," says Shryne. "I can put in one of these cash recycling machines, integrate it right on into the work surface, and provide sales and service from one point."

At some of its branches, Bank of America tested TASS kiosks from Source Technologies (Charlotte, N.C.). Then, at the end of the pilot, customers complained that the machines were taken away, according to Miles Busby, CEO of Source Technologies. Even though it actually takes longer for the customer to key in information than it would take for a teller to do the same thing, the involvement in the task makes for a shorter perceived waiting period, Busby suggests.

Theoretically, banks could go the next step and eliminate even that single teller by building ATMs with the capability to accept checks, dispense a full range of bills and coins, and perform other service functions. Yet that's probably not in the cards for the time being. "Certain transactions are quite complicated and require a teller to be there," IBM's Greene says. "There's a safety and soundness aspect."

Another aspect is the opportunity to meet the customer. "You don't want to depersonalize the business of banking completely," Greene remarks. "You want to know what's going on with customers to some extent."

Out on a Limb

So, despite the blurring of the lines between the ATM lobby and the branch, bank employees will probably stick around for the foreseeable future. However, their jobs will change. Instead of sitting in an enclosed area, separated from the customer and relegated to repetitive tasks, branch employees will have to master a whole new set of frontline sales skills. "Banks are shifting their strategies," says Anjalee Davis, analyst, Celent Communications (Boston). "They're hiring individuals with greater training so that they can do cross-selling and higher levels of service."

One approach, notes Davis, is for a bank to cross-train everyone, so that branch employees can work as tellers during peak times, and then sell CDs or walk customers through online applications during the slower stretches of the day. Another avenue is to increase the percentage of branch staff with broker's licenses acting as registered representatives of a broker-dealer subsidiary of the holding company.

Since it probably doesn't makes sense to put a registered representative, mortgage banker and insurance broker inside every branch in a bank's branch network, financial institutions are increasingly creating two types of branch banks: transactional "express" branches and full-service versions with a larger, more-qualified staff. But videoconferencing technology can help to erase the difference, enabling banks to use the skills of its workforce across the broadest possible geographic area.

Executives from financial-retailing consulting firm John Ryan (Minneapolis) and IBM recently demonstrated the concept at a joint technology showcase in their Stamford, Conn.-based "Merlin Center." The customer isn't expected to establish a video connection with an adviser; rather, a branch employee acts as a facilitator. After determining the customer's needs, the employee then sits down with the customer at the table and introduces him or her to a remote colleague. That person could be located at another branch, based at a dedicated facility or even working for a separate company. The demonstration used Cisco (San Jose, Calif.) networking gear. Similarly, Avistar Communications (Redwood Shores, Calif.) is working to deploy a branch-based videoconferencing solution with a major bank.

So far, the consensus on videoconferencing is that the person on the other side of the screen will be an in-house, in-country employee. Banks "will likely establish bank-owned, call-center-like facilities to satisfy the needs of customers in remote branches," according to Tom Weakland, partner in the financial services practice of consulting firm DiamondCluster (Chicago, Ill.). "In the near future, these facilities will likely be here in the U.S., as financial planners require a good deal of local- and regional-specific knowledge about products and processes."

Going outside of the organization via video would also present its own challenges. "To connect bank clients with outsourcing partners for non-core bank products like insurance and investments is to allow the relationship to be potentially diluted by partners [e.g., Allstate, State Farm] who sell multiple products - and sometimes bank products," warns Craig Simms, SVP, VantisLife Insurance (East Hartford, Conn.).

Nevertheless, product knowledge can always be taught and airtight contracts can be hammered out. Thus, videoconferencing may pave the way toward the offshore outsourcing of the branch employee. "Once banks get past the hurdles of specific knowledge and technology, who knows what can happen?" adds DiamondCluster's Weakland. "Our bet is that these [videoconferencing] facilities will then move to India, for its obvious advantages of a large pool of smart, English-speaking, competitively priced labor." Alternatively, given the growing need in multiethnic societies for the neighborhood banker to speak many languages, video support centers could be distributed across several key regions.

As transactions shift to automatic mode and financial advice becomes virtual, banking per se will only occupy 20 percent of the floor space at a branch, suggests Eduardo Alvarez, executive vice president, strategy and design services, Willey Brothers (Rochester, N.H.), a point-of-purchase communications firm. The other 80 percent will go toward "related services - legal services, insurance agencies and travel services - even FedEx, Kinko's, UPS, Office Max, Staples and H&R Block," Alvarez offers. "Want to buy a home or relocate a business? Access real estate listings from a kiosk, or sit down with a realtor - all while sipping a cup of coffee from the in-branch Starbucks."